Economics Chapter 4: Demand Test Questions – Flashcards
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Microeconomics
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the study of the economic behaviors and decisions of small units, such as individuals and businesses
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Demand
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the willingness to buy a good or service an the ability to pay for it
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Law of Demand
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states that when prices go down, quantity demanded increases. When prices go up, quantity demanded deceases
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Demand Schedule
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a table listing of how much of an item an individual is willing to purchase at each price
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Market Demand Schedule
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table listing of how much an item all consumers are willing to purchase at each price
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Demand Curve
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a graph that shows how much of a good or service an individual will buy at each price. Graphically shows the data from a demand schedule
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Market Demand Curve
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A graph that the quantity that all consumers are willing and able to buy at each price. Graphically shows the data from a market demand schedule
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Vera Wang
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fashion designer who made a fortune starting a company designing high end wedding gowns for the rich and famous
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Law of Diminishing Marginal Utility
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states that the marginal benefit of using each additional unit of a product during a given period will decline
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Income Effect
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the change in the amount that consumers will buy because the purchasing power of their income changes
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Substitution Effect
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a change in the amount that consumers will buy because they buy substitute goods instead
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Change in Quantity Demanded
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an increase or decrease in the amount demanded because of change in price
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Change in Demand
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occurs when something prompts consumers to buy different amounts at every price
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Normal Goods
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goods that consumers demand more of when their incomes rise
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Inferior Goods
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goods that consumers demand less of when their income rise
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6 Factors That Cause a Change in Demand
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income, market size, consumer expectations, consumer taste, substitute goods, complementary goods
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Income
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If a consumers income rises they tend to demand more normal goods and less inferior goods. If a consumers income decreases they tend to demand less normal goods and more inferior goods.
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Market Size
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Usually has a corresponding effect on demand. If Market Size increases demand increases if Market size decreases demand decreases.
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Consumer Tastes
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If a product becomes popular its demand increases. If a product looses popularity demand decreases.
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Consumer Expectations
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Your expectations for the future can affect your buying habits today.
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Substitutes
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Goods and services that can be used in place of each other. If the price of a substitute drops it will cause people to buy the substitute instead. If the price of a substitute rises it will increase demand of the original.
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Complements
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Goods that are used together so a rise in demand for one increases the rise in demand of the other.
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Elasticity of Demand
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A measure of how responsive consumers are to price changes
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Elastic
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Quantity demanded changes significantly as price changes
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Inelastic
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Quantity demanded changes little as price changes
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Unit Elastic
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When the percentage change in price and quantity demanded are the same
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Factors That Affect Elasticity Demand
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The three factors that affect elasticity demand are: Substitute Goods or Services, Proportion of Income, and Necessities Versus Luxuries.
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Necessity
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A necessity is something you must have,such as food or water.
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Luxury
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A luxury is something that you desire but that is not essential to your life, such as a plasma television.
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Total Revenue
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The amount of money a company receives for selling its products.
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Total Revenue Test
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a method of measuring elasticity by comparing total revenues. If total revenue increases after the price drops, then demand is considered elastic. If total revenue decreases after the price is lowered, demand is considered to be inelastic.
